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Lost prophets : an insider's history of the modern economists

Economics and its practitioners have come to dominate political and business decision making to an extent unimaginable before World War II. Indeed, until the time of Franklin D. Roosevelt, there were no national income accounts to monitor the economy's health; the pulse of economic affairs was taken mainly from the stock market's gyrations, railroad freight activity, and an annually calculated unemployment rate. Today, just fifty years later economic forecasters possess such clout that stock markets often hang on their prognostications, business planners frequently alter course based on their advice, and many political campaigns have been influenced by their analyses and predictions. But what does the record tell us about the reliability, even the usefulness, of what economists advocate? How have their insights, as well as their miscalculations, shaped our lives and our world?

Alfred L. Malabre, Jr., a prize-winning author and front-page columnist and editor for The Wall Street Journal, probes these questions as he charts the rise and fall of economic schools of thought, from Keynesianism to monetarism to supply-side economics. Capturing the people and places as well as the ideas, his anecdotal history illustrates how the advice of our most noted economists has helped and hurt the economy over the years. Malabre goes behind the scenes at Bretton Woods, showing why and how an international monetary system constructed around fixed currency rates began in 1944, earned undue credit for the post-World War II "golden age of capitalism," and then collapsed in the early 1970s as rampant inflation beleaguered the European nations.

He analyzes how press attention to the monetarist model increased after some 200 prominent individuals from business, academia, government, and the media - among them Milton Friedman, Beryl Sprinkel, and Allan Meltzer - attended a posh 1969 conference at the Arizona Biltmore in Phoenix. He reveals how support for supply-side economics gathered momentum through the friendship of The Wall Street Journal's Jude Wanniski and Arthur Laffer, creator of the famous Laffer curve.

. More often than not, the real-world impact of these economic theories has proved embarrassingly different than anticipated, with much damage to the economy, and ultimately to our living standards. But present-day lessons emerge from the mistakes. The collapse of the Bretton Woods system informs the debate about the European Community's current, troubled efforts to tie together the exchange rates of its widely dissimilar member nations. Memories of the 1981-1982 recession, the worst slump since the Great Depression and a consequence of monetarist procedures at the Federal Reserve, help explain the Fed's reluctance now to link its operating policies too closely to any monetary aggregate. Our economists are here to stay, Malabre condudes. For all their miscalculations, he predicts that their counsel will still be sought, but will focus more on practical solutions to everyday economic problems - and less on theories conceived in ivory towers and, time and again, discredited by events.

Impossible dream; back to the home front; Keynes redux; the new confusion; the monetarists, rising and falling; supply-side economists - a not-so-free lunch; looking ahead; finding a role.

Responsibility:

Alfred L. Malabre, Jr.

Abstract:

An account of the world's best-known economists, their ideas and their influence on our world. The author charts the rise and fall of economic schools of thought - and the people who brought these ideas into the policy-making arena including Greenspan, Burns, Samuelson and Friedman.Read more...